In the end, however, one has to ask a more basic question. Why do we care about inequality at all?

Poverty, of course, is a bad thing. But is inequality? After all, if we doubled everyone’s income tomorrow, we would eliminate an enormous amount of economic hardship. Yet, inequality would actually increase. As Margaret Thatcher said about those who obsess over inequality, “So long as the [income] gap is smaller, they would rather have the poor poorer.”

Another Nobel Prize winner, F. A. Hayek, concluded, “The rapid economic advance that we have come to expect seems to be in large measure a result of this inequality and to be impossible without it. Progress at such a fast rate cannot take place on a uniform front but must take place in an echelon fashion, with some far in front of the rest.”

We should all seek a prosperous, growing economy, with less poverty, and where everyone can rise as far as their talent and drive will take them. Equality? Who needs it?

Well put.

First, it assumes that upward mobility in the United States is lower than in many other countries. This may or may not be true, depending on how it is measured. For example, how much credit should be given to official statistics as reported by various countries? Certainly, focusing on the official “poverty” level will give bad results, as discussed here.  But even using income percentiles poses challenges. For example, should welfare and other “benefits” in socialist European countries be counted as income? When I lived abroad, I routinely encountered people making more money than I did, for doing absolutely nothing. The individuals in question were not independently wealthy or trust-fund babies; they were merely beneficiaries of a very generous welfare state, which rewarded them for being unemployed and sitting around various public areas all day, which making no effort to find work. The artificial support given to such individuals may mask the natural cause-and-effect relationships between work and prosperity on the one hand and sloth and poverty on the other.  The NRO article, like most discussions of economic inequality, also totally ignores wealth, focusing only on income. There are good reasons for this, chiefly the availability of data on income and lack thereof on wealth, but the distinction is still an important one and is totally ignored in the article in question.

The second and more significant failing is in the article’s assumption that increasing upward mobility is always a good thing.  That’s not necessarily true.  Certainly, increasing opportunities are always good, but one can easily imagine a very high-mobility society with an extremely dysfunctional economy.  For example, imagine a tax system in which anyone whose parents were in the top 40% of the income distribution at the time of his or her birth pays a tax surcharge of 40% of his or her gross income, which funds are then distributed to those whose parents were in the lowest 40% of the income distribution.  This would, at least temporarily, result in incredibly high mobility, but it would be manifestly unfair and strongly disincentivize anything resembling ambition or hard work.  The point is that mobility is not the goal; opportunity is. Past a certain level, increased mobility can only be achieved at the cost of stability and fairness.  For every person who moves up the income distribution, somebody else moves down, because rankings are a zero-sum game.  Foster too much movement from the lower end of the distribution into the higher end, and you are by extension fostering an environment in which many of the highest earners suffer precipitous plunges in their incomes.

These are just some quick musings on the article; I would be curious to hear what others thought.

Sites or people with lots of information in general, some good, some bad, some possibly crazy:

• Elliott Wave International.
• Karl Denninger.
• The Evil Speculator.
• Gerald Celente.
• Nouriel Roubini (a/k/a “Dr. Doom”) (see also here).
• Nassim Taleb.
• Greg Mankiw.
• Gary Becker and Judge Richard Posner.

Some interesting specific links:

• Alternative data on key economic metrics.
• A report from the Office of the Comptroller of the Currency showing where things were last fall.
• Flow of Funds report from the Federal Reserve.  The table on page 2 is especially interesting.  So is page 14, but page 15 is the best.  In Q3 2007, the federal government accounted for 14% of total borrowing in the United States; in most quarters it’s around that or lower.  In Q3 2008, it was 88.5%.  In other words, nearly all of the credit extended to anyone for an entire three month period was extended to the federal government.  Last year looks almost nothing like any other period in decades.
• Where we may really be in the housing bubble.
  
• The Challenge Before America.
• Denninger’s thoughts on pensions.
• The second bubble in housing?
• Optimism.
• The $2 trillion (in one go) bailout proposal.
• Bob Prechter on 1987 and the current market, back in 2007, complete with charts and graphs.
• All-time record-setting low rates from the Bank of England (which is 315 years old).
• SmartMoney.com on market timing and investing for 20- and 30-somethings.
• The shadow banking system (Wikipedia link, but just go through the article footnotes or search for that phrase and you’ll find ample substantive material on this one).

In fact, the Founding Fathers designed our Constitution so as to make it very difficult to bring about significant changes. New legislation requires majorities in both houses of Congress followed by a presidential signature. Constitutional amendments are even more difficult — the easiest method is for an amendment to pass both houses of Congress by two-thirds majorities and then be ratified by three-fourths of all state legislatures. This suggests the Founding Fathers were suspicious of quick and easy change.

The actual genius of America, and what makes our country unique, is precisely the opposite of change. It is that our country was founded on certain timeless principles, laid out in the Declaration of Independence and put into practice by the Constitution. These principles include the conviction that all men are created equal, that they are endowed with certain inalienable rights, that among these rights are life, liberty, and the pursuit of happiness; and that governments are instituted among men to secure these rights, and to provide freedom of conscience, freedom of speech, and equal protection under the law.

and especially:

Our constitutional structure recognizes the value of stability, and that change can be (indeed, often is) more damaging than uplifting. It acknowledges that existing social structures and traditions are not merely vestiges of an ignorant past, but rather reflect the accumulated wisdom of our ancestors and the evolutionary fruits of centuries of social experimentation. It respects the organic nature of political communities, with their interdependent parts woven together in a web of complexity that confounds even the most well-laid plans of radical social engineers.

Coming from this source, that sent chills down my spine. I hope he’s wrong. But I think he might be right.

[Author's note: In the spirit of my four other posts today, I choose not to explicate this post any further. As one of my favorite math professors used to say, "The proof of whether I'm right or wrong - and I'm right - is left as an exercise to the reader."]